With the beginning of tax season just a few weeks away, many business owners will soon be turning their attention to their tax returns. One concern that inevitably creeps into many taxpayers’ minds is the possibility of being audited by the IRS.
A tax audit is an examination of an organization’s or individual’s tax return to verify that financial information is being reported correctly. While the chances of being singled out for closer scrutiny are statistically low, there are factors that could increase your odds of receiving an audit notice.
Fortunately, there are measures you can take now to minimize future problems.
What Triggers an Audit?
A variety of potential “triggers” in tax returns tend to raise questions and attract unwanted attention from the IRS. The IRS uses a computer scoring system, called the Discriminant Information Function system, which analyzes tax deductions, compares taxpayer data, and is often the basis for initiating an audit.
Issues can crop up when income is not fully reported or business operating losses are considered out of the ordinary.
Other audit triggers may include errors or inconsistencies in the return, omissions, lavish business-expense deductions for meals and entertainment, and a sharp drop in reported income from one year to the next.
Exceptionally large charitable deductions can sometimes trigger an IRS audit, but they’re usually allowed when a taxpayer has receipts and documentation to back them up.
What Are Tax Audits?
No matter what type of audit the IRS decides to conduct, you will receive notification of it by mail. A mail audit is the simplest type of IRS examination and does not require you to meet with an auditor in person.
An office audit is an in-person audit conducted at a local IRS office. These audits are typically more in-depth than mail audits and usually include questioning by an audit officer about information on your return.
You will be asked to bring specific information to an office audit, such as the books and records for your business or your personal bank statements and receipts. You also have the right to bring an accountant or lawyer to represent you at these meetings.
The field audit is the broadest type of examination that the IRS conducts. In these cases, an IRS agent will conduct the audit at your home or place of business. Generally, field audits are conducted when the IRS is questioning more than just a deduction or two. A field audit is generally very thorough and will cover many, if not all, items on your return.
Who Can Help You with Your Income Tax Audit?
Rex Halverson and Associates consult on a broad range of California state and local tax issues, including franchise tax, income tax, property tax, sales tax, use tax, employment / payroll tax, fuel tax, and business license tax matters, as well as California New Employment Credits and California Competes Credits.
They are committed to providing the highest level of client services and offer extensive experience across many industries including, automotive parts, equipment leasing, payroll services, computer hardware, software, banking, travel, motion picture, printing, transportation, utilities, medical supplies and devices, manufacturing, construction, agriculture, wine, car dealerships, commercial real estate investment and retail.
Rex Halverson and Associates?
Tax problems don’t solve themselves. That’s what Rex Halverson and Associates do! Why settle on having a hard time with tax audits wherein there were professional associates that can handle it for you! Contact them NOW! 916-444-0015.
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